How will 12% GST on under-construction properties impact real estate?

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GST Bill

With the inclusion of works contracts under the 12 percent slab of GST, under-construction properties have come under the ambit of the revolutionary tax regime. 99acres.com analyses what this means for the Indian real estate sector.

The Goods and Services Tax (GST) Council has included works contracts between realty developers and service providers under the 12 percent slab. This move has brought under-construction properties under the GST regime while ready-to-move properties still remain out of the new tax system’s ambit.

Currently, a works contract bears six percent service tax and one to five percent Value Added Tax (VAT) varying from one state to another. In all, the real estate sector attracts indirect levies in the range of 9-11 percent, comprising excise duty, service, tax, and VAT, to name a few. Further, there is limited facility of input tax credit for developers which means that developers cannot set off taxes paid on input materials against indirect taxes collected from buyers. These restricting provisions contribute to the high prices of real estate in the country.

Good news for stakeholders

Come July 1, the GST regime will subsume major indirect taxes into a single rate, 12 percent in case of under-construction properties, and will also put an end to dual taxation. Sachin Menon, National Head, Indirect Tax, KPMG explains that, currently, both service tax and VAT is levied on 110 percent of the contract value. While 15 percent is levied as service charge on 40 percent of the contract value, VAT/excise duty of about 18 percent is charged on 70 percent of the contract value. Levying GST on works contracts at 12 percent will reduce the cost of real estate in the hands of the buyer and will give a much needed fillip to the sector.

The removal of obstacles in the path of full credit utilisation by developers will also help lower the actual incidence of GST. This will help in strengthening the credit chain in the real estate sector, comments Pakshal Sanghvi, Director, Sanghvi Realty.

How will this impact property prices?

Allaying homebuyers’ concern about any drastic rise in property prices due to tax regime change, industry experts state that buyers of under-construction properties are unlikely to be burdened with additional tax burden on account of GST rollout.

Industry experts explain that that the final impact of the revolutionary tax reform on property prices will vary from one state to another. Since VAT is a state levy, the exact effect of its replacement with GST will differ across the country. For instance, in a state where the current indirect tax levies are lower than proposed rate of 12 percent, property prices could still turn out to be cheaper under GST if the benefit of input tax credit outweighs the increase in the tax rate.

Amit Wadhwani, Director, Sai Estate Consultants, adds that the possibility of lower construction costs on account of input credit could lower property prices if developers pass on the benefits to end users. This will be further supported by the anti-profiteering clause which urges developers to share the benefits derived from GST with the buyers via proportionate reduction in prices. Thus, the general agreement in the industry is that the new tax structure will not cause any undue spike in ticket sizes of under-construction properties. 


Copyright 99acres.com


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  • Comments
  • sumit Joshi June 21, 20175:43 pm

    Agreement is executed then when effect of GST Act will be retrospective ? Only loan amount is to be disbursed, now whether I have to pay extra service tax as per GSt?

    Reply
    1. Farozan Akhtar

      Farozan Akhtar June 22, 201712:15 pm

      Dear Sumit,
      It would be better if you enquired about any possible retrospective effect of GST from an expert. You may post the query at 99acres’ Ask and Answer forum at 99acres.com/ask.

      Reply
  • Atul Shah June 26, 20171:09 pm

    I have purchased flat under construction in Mumbai before GST I have to pay 4.5% service tax+1% vat now I have to pay 12% can I get any set off from builder or in stamp duty if yes then how I will get if no then my cost is increased so how GST benefits to buyers of under construction property.

    Reply
    1. Farozan Akhtar

      Farozan Akhtar June 27, 201711:41 am

      Dear Atul,
      The government has asked developers to pass on the benefits of the new regime to the buyers and has even threatened to invoke the anti-profiteering clause if they fail to do so. As for stamp duty, it will have to be paid even under the new tax regime.

      Reply
  • sunil shah June 27, 201712:09 pm

    GST 12% ? DO THE BUYER HAVE TO PAY ? IF I HAVE BOUGHT FLAT FOR 40 LAKH AND IF AGREEMENT IS PENDING , IF I WILL NOT MAKE THE PAYMENT TO BUILDER BEFORE 1ST JULY 2017- DO I HAVE TO PAY 12% MORE ON BALANCE AMOUNT ?

    Reply
  • Dinesh Dumbre June 27, 20173:17 pm

    I have booked my flat on 16th April with 10% amount prior to RERA and GST implementation, but my builder has yet not created my registration, what will be the tax impact ? And what can i do about it?

    Reply
    1. Farozan Akhtar

      Farozan Akhtar June 28, 201712:27 pm

      Hi Dinesh,
      For under construction properties, the GST rate will apply post July 1. Please consult an expert for a detailed answer to your particular query. You may post the same on our Ask and Answer forum at http://www.99acres.com/ask

      Reply
  • Himanshu R Raul June 28, 20173:25 pm

    I have booked my flat on 2012 and registration on 2013 but till flat under construction. builder send letter that after 01/07/2017 we have to pay balance amount as per GST 12%???????

    Reply
    1. Farozan Akhtar

      Farozan Akhtar July 4, 20173:09 pm

      VAT and service tax for under-construction properties have been replaced by GST of 12% (excluding the cost of land). If you have any pending VAT or service tax on the property, you will have to pay GST instead, from July 1.

      Reply
  • Ubed June 28, 20177:07 pm

    I have purchased a flat in an under construction building in Mumbai. I have already paid 100% amount to builder, But till now I have not paid Service Tax & VAT to builder (because project is stopped). After 1st July, Do I have to pay 12% instead of 5.5% (ST of 4.5% and VAT 1%).

    Reply
    1. Farozan Akhtar

      Farozan Akhtar July 4, 20173:11 pm

      GST has replaced service tax and VAT so pending payments will involve 12% GST (excluding the cost of land).

      Reply
  • CA Rupesh June 28, 201710:57 pm

    No builder is passing benefit of input tax and it is difficult assess how much paid befor 1st July. They are charging 12% from 5.5% on remaining demands.It is going to huge burden on middle class who already suffering from unprecedent delay on project completion.

    Reply
  • imtiyaz June 30, 201712:32 am

    I did agreement of sale of a flat with builder during oct 2016 and paid 6% stamp duty and 1% registration charges. Now after completion of construction I want to do sale deed. The current VAT is 1% and service tax is 3.66%. How much tax will be applicable if I go for sale deed after 1 july??

    Reply
  • A K Bhaskar July 3, 20178:57 am

    My in laws has booked a ready to move flat @38.10 lakh in Bangalore. Registration charge including stamp duty was 6.6%. What will be GST effect on the registration?

    Reply
    1. Farozan Akhtar

      Farozan Akhtar July 4, 20173:07 pm

      GST will not impact registration charge or stamp duty. These will continue to apply as earlier. GST has only replaced indirect taxes such as VAT and service tax.

      Reply
  • Devendra July 3, 201712:39 pm

    Hi Team,

    I have purchased under-construction Flat and paid the builder 4.5% service tax and 1 % vat Stamp duty and registration and agreement is done before GST and on 3rd July disbursement is also done for 80% of the construction now as GST is 12%, please let me know so i need to pay more and also help me If i can go for PMAY Yojana.

    Reply
    1. Farozan Akhtar

      Farozan Akhtar July 4, 20173:13 pm

      Hi Devendra,
      If you have any pending VAT or service tax, then you will have to pay GST instead of the indirect charges. Please post your question on http://www.99acres.com/ask so that experts may clear your confusion.

      Reply
  • Prasad July 3, 20178:11 pm

    Hello Team,

    I paid Service tax, vat and 10% flat amount to buldier and also registration did before the GST implemented. Do I need to pay again 12% GST TAX. Please suggest.

    REgards
    Prasad

    Reply
    1. Farozan Akhtar

      Farozan Akhtar July 4, 20173:16 pm

      Hello Prasad,
      If you have already paid VAT and service tax for the property, you will not have to pay GST.

      Reply
  • Satish Kumar Saxena July 4, 20177:29 pm

    Hello Team
    I had booked a under construction flat at Mumbai in Year 2015. Since than I paid 75% of flat cost, associated Service tax at 4.5% rate. Also registered the property paying stamp duty and paid VAT before Ist July. Now do I require to pay 12% GST on entire flat cost or only on the balance 25% flat cost to be paid post GST regime.
    Kindly respond.
    Regards.
    S.K.Saxena

    Reply
    1. Farozan Akhtar

      Farozan Akhtar July 5, 20179:32 am

      If there is any pending VAT and service tax applicable on the property, you will need to pay GST 12 percent on the property value yet to be paid.

      Reply
  • K Biswas July 5, 20173:11 pm

    Hello Madam,
    As discussed with the builders, it seems that the builder may pay around 4-5 percent of the GST while we have to pay the remaining 7-8 percent. In no case, they may be ready to pass on the excess 7.5 percent tax. So ultimately we have to pay more. Would like to know your cooments on this.

    Reply
  • Vineet July 5, 20176:58 pm

    Hello Team,
    I have done the agreement on 27 jun (before 1july) and paid (Full VAT+ Full Service Tax)+10% Flat amount. Will GST applicable to remaining Bank’s disbursement amount?

    Reply
    1. Farozan Akhtar

      Farozan Akhtar July 12, 20173:38 pm

      If you have already paid the entire service tax and VAT applicable on the property, you do not need to pay any additional GST.

      Reply
  • Nilesh N July 10, 20171:56 pm

    I recently approached a reputed builder for an underconstruction property wherein they have raised the flat cost by 6% on impact of GST i.e. they have levied 12% GST as compared to earlier 6% of S.Tax and VAT. And are not ready to reduce the flat cost onn account of input tax benefits of GST?? Is it correct or builder is violating Anti-profeetering law?

    Reply
    1. Subhadra Badauria

      Subhadra Badauria July 24, 20174:14 pm

      Dear Irfan,

      If you have purchased a property and have not paid VAT and Service Tax yet then you are liable to pay 12 percent GST as per the new tax structure.

      Reply
  • Mohammed Irfan July 11, 20173:19 am

    I have purchased a flat in an under construction building in kolkats. I have already paid 80% amount to builder, But till now I have not paid Service Tax & VAT to builder (because in agreement there is no clause for service tax i have to pay). After 1st July, builder said have to pay Service tax / GST. Pls advise what will i do.. its not a legal construction building.

    Reply
    1. Farozan Akhtar

      Farozan Akhtar July 12, 20173:45 pm

      Please post your question in 99acres’ Ask and Answer forum at http://www.99acres.com/ask for better clarity from experts.

      Reply
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